高露潔 (CL) 2004 Q3 法說會逐字稿

Good day everyone, and welcome to today's Colgate-Palmolive Company third quarter 2004 earnings conference call.

Today's call is being recorded and is being simulcast live at www.colgate.com just as a reminder there may be a slight delay before the question and answer session begins due to the Web simulcast.

At this time for opening remarks, I would like to turn the call over to the Vice President of Investor Relations, Ms. Delia Thompson, please go ahead ma'am.

Thanks, Audra.

Good morning.

Welcome to our third quarter earning's release conference call.

With me on the call this morning are Reuben Mark, Chairman and CEO;

Steve Patrick, CFO;

Dennis Hickey, Corporate Controller;

Ed Filusch, Treasurer;

Lois Juliber, Vice Chairman; and Javier Teruel, Vice Chairman.

Of course you all know, we provided guidance for you about a month ago.

What we've reported this morning is very much in line with that guidance.

And as we said then and as Reuben noted in this morning's press release we are seeing very good results from our increased competitive spending in both volume and market share.

Although as Reuben said, these top line and market share increases have come at a cost to short term profits.

You also know that raw and packing material prices have increased essentially to the levels we envisioned when we talked to you last.

We have offset a great deal of these increases with our many savings programs which are functioning well.

Historically we have been able to more than offset cost increases with our cost reduction.

With a substantial amount left over to fund increases in commercial spending.

In the very short term, the combination of extra spending and increased costs cannot be completely funded by our existing programs.

And as you will see this will improve shortly.

You will hear how we have materially increased global media spending.

Global advertising and what we have been calling global total commercial spending.

Commercial spending is an aggregate of all the business building activities in which we engage.

Some this spending is reflected as a negative in price and part is accounted for in advertising portion of SG&A.

And as I think you already know, we consider it vital that we deal decisively with global economic and competitive pressures in a manner that will allow us to emerge with enhanced, more profitable global franchises in our four businesses.

This is indeed happening and we are pleased with the results in the marketplace so far.

Let us look at the P&L for this quarter first.

Sales exclude divestments increased 8.5% on an 8.5% volume increase.

This is the largest global volume increase in 29 quarters.

Currency was positive 2% and pricing was negative 2%.

Netting each other out.

Volume was strong in every division especially so in north and Latin America.

Sales as reported increased 7%.

Gross margin declined 20 basis points to 54.8%.

On a 9-month basis gross margin is up 20 basis points to 55.3%.

The breakdown of the gross margin in the quarter is as follows: Our ongoing global savings programs and related SAP initiatives were even stronger than they normally are generating a full 180 basis points versus an historical average of 100 to 150 basis points.

Raw and packaging materials were negative 130 basis points.

Negative 1/3 greater than what we experienced in the second quarter.

Increased promotional activity which I referenced above as a deduction of gross profit resulted in a negative 100 basis points.

And other factors contributed a positive 30 basis points.

Worldwide total commercial spending increased strong double digits.

Worldwide media spending increased even more.

And you'll be interested to know that media spending was up in every operating division.

Total worldwide advertising increased over 10.5% to 10.6% of sales.

As a result of this increased investment total SG&A increased over 100 basis points to 34.9% of sales.

Operating profit in our operating divisions increased about a 1.5% and was up .5% for the Company as a whole.

Net interest expense at $30.1 million was down slightly from the year ago period.

And profit before tax was level with the year ago quarter.

The tax rate in the quarter was 35.2%.

Higher than the 32.7% to which we guided you and about 750 basis points higher than the third quarter of 2003.

Through the first half of this year our tax rate was 32.7%.

Well above last year for the reasons we told you in both the first and second quarter conference calls.

We had projected the same levels for the full year rate as well.

I think you know that the mechanics of the tax calculation require us to reflect on the year-to-date basis what our full year rate will be.

And we're now projecting a full year rate of 33.4%. a 70 basis point increase which requires a third quarter rate of 35.2% to bring the our nine months to that level.

We just completed a comprehensive review of our projected global annual tax rate which as you can imagine is complex when you operate in a couple of hundred countries.

The primary factor contributing to the increase in the projected level tax rate assumption is the result of our mix of business.

Countries in which we pay low taxes for example Mexico, Hong Kong, China and others, are also the countries where we have increased our commercial investment to successfully blunt competition and gain market share.

We expect the fourth quarter tax rate to be 33.1% and we project our global tax rate for 2005 to return to the 31.5 to 32.5 range.

Going back to the P&L, net income declined 10% as expected with a higher tax rate versus last year obviously having a meaningful effect.

Earnings per share on a slightly lower share count declined 8%.

As you would expect we have stepped up our share buy back program recently with the stock at current prices and as you saw in the press release our Board yesterday authorized an enhanced repurchase plan to buy back 20 million shares of Colgate stock between now and the end of 2005.

This allows us to buy back at an almost twice the level of 2003 and 2004 year-to-date average purchases.

Turning to the balance sheet as noted in the press release.

All our key capitalization ratioes have improved.

In the quarter our cash flow provided by operations increased 7%.

Cash flow provided by operations was down about 4% for the nine months, due to one time tax payments relative to gains from selling our detergent business last year.

Working capital was down from the second quarter to 3.4% but up slightly from the 3% level of last year.

So, a quarter in line with guidance with considerable encouragement on the top line.

As you know we are comfortable with the current expectations for the fourth quarter as well.

But, before we look at the specifics for the divisions, Reuben wants to say a few words about our expectations for 2005.

Thanks Delia.

Good morning everybody.

I just thought I'd like to make a few somewhat extemporaneous comments before Delia goes on with the division.

So I have some notes I have taken.

Time to say a few words about how we see the world and what our outlook quite specifically is for 2005.

This is based on, obviously, my own observations, those of our very competent financial group, Javier Teruel and Lois Juliber are here in the room with us and have shared their views and Bill Shanahan, President of the Company, and Ian Cook the Chief Operating Officer are now basically on a worldwide tour together reviewing businesses and I chatted with them yesterday.

Clearly, as you know, from us and other people, the world at the moment is a highly competitive kind of place.

Competitive on a price basis in terms of media spending, in terms of innovative new products and I guess all of our planning assumes it will stay that way.

Perhaps some of those pressures will be relieved but our assumptions is they will not.

As we are normally very conservative.

Simultaneously, those are compounded as Delia has pointed out and I pointed out last time, by an increase in raw and packing material cost, driven by oil and other factors.

So I'd like to spend a moment and look at four things with you.

Four areas of focus which are very important to us and I assume are very important to you as investors.

First are the fundamentals of the business.

How do the fundamentals look?

What is the feeling of the members of management that I just mentioned shared by me.

Secondly, how do we evaluate our control systems and processes.

We have historically taken great pride in them.

They have been up for a bit of criticism given a preannouncement.

And I would like to explore that briefly with you.

Third and vitally important our ability to fund the growth which is our term for continuing to increase gross profit as we have for many years in order to pay for these higher levels of spending and also absorb the cost increases and finally the very specific expectations for 2005.

Starting off with fundamentals and by that I mean market share, volume, but beyond that consumer perception of our products, market development work in the developing world in terms of increasing per capita consumption.

Professional, in some cases dentists and other cases health professionals what they think and what the level of recommendation among them.

I can say that and also new product flow and innovative ways of bringing our products to the consumer.

Bill's comment interestingly enough yesterday was that he has never seen the countries he has visited healthier in terms of in store presence, market share, volume initiatives, volume levels, professional recommendations, and so on.

So I guess, my conclusion based on everything we have seen, not simply on those comments but what we'e seen statistically around the world and market share, volume trends and success of new products.

Is that the fundamentals are sound.

And I think will continue to be so.

The two things that are effecting us as we said last time and continue to believe are the competitive level of the spending and our desire to ensure that we emerge from this period stronger than ever in our core businesses accompanied by raw and packing material costs.

The control systems we have looked at very carefully, what went on internally, both from a feedback from the subsidiaries and our reporting systems, based on SAP and based on our own historic processes.

We've looked at our, the workings of our disclosure committee.

We've worked on our relationships with Board, the Board and ourselves, and I have to say that our conclusion is that we found out when we should have found out what was going on we knew that spending was going up, we had expected based on history that the -- that incremental volume would come in, it did, but less than we had thought even though it's higher than our formal expectations and that the costs had gone up more rapidly than we had expected.

One thing that needs, I think, a bit of clarification is that the what we did at the beginning or the middle of the third quarter, was lay in the plans for the third and fourth quarter.

So that a good deal of the expenditure was prospective investment, not simply recognition of what was already going on.

Basically all of our spending, media spending and normal promotion spending is tightly controlled, tightly approved as is gross net spending but the gross -- the net spending on a percentage basis is a relatively -- the change is a relatively small amount of a very large sum and although our subsidiaries around the world especially those that consider themselves to be under attack, were under instructions to defend the business, they have done that, they are doing that to very good effect.

And my sense and the result of both Board examination and our own examination of our processes and systems is that they are -- continue to be sound.

I will match our systems and processes and discipline against anyone.

So, again there has been speculation about that but nonetheless we feel very strongly that our systems and processes are good.

Most importantly is the ability to fund the growth.

As you know historically we have been very good at this.

We continue to be.

We have taken it always on a measured basis.

Which we will continue to do but we will accelerate our plans as I told you last time over the -- plans that were intended to be laid in over the next several years.

They will be condensed in time.

That acceleration process is now underway, we will be able to talk to you more explicitly during the fourth quarter.

Suffice it to say, that the organization is devoted in a very organized and methodical fashion as we normally would to making this happen.

We expect and the preliminary looks are that this combined with other projects underway will allow us to be in that famous year of 2008, at a gross profit somewhere between the high 50s and low 60s that combined obviously with the, divestment program of our lower margin products and the continual mix movement.

So looking at next year, what are the challenges?

Specifically, obviously, there is heavy competitive spending and we will continue spending at levels higher than we spent, the high levels we spent at this year but as I'll mention to you in a moment, that, it will be at a somewhat less rapid rate, primarily because in a number of the key markets where we defended our franchises, our market share has grown.

The competition has been contained and to maintain that level, will require somewhat less of a sampling and so on, although as I say, we will go up next year in both media spending and total commercial spending but at a lesser rate than this year.

Secondly, we have of course limited price increase opportunities and the -- while again, we expect it to be not as bad as this year.

We do -- will have higher raw and packing material cost.

Those are the things -- the challenges that we have next year.

I don't think we have meaningful challenges in terms of our market penetration, our leadership in the various categories in which we lead and most particularly toothpaste but of course we shall see but so far we have some real confidence that that is in good shape.

What are the advantages as we go into, those are the challenges, what are the advantages as we go into the year 2005?

As I said we have excellent market share and volume momentum, we expect next year our unit volume to be higher than our historical average as it is this year.

Again, let me preface this by saying we have of course have not completed our budget cycle and this is based on preliminary budgets and the best feel, subsidiary that we can obtain.

We also think that a combination of factors including the acceleration of our funding in the growth and some mix aspects and the divestments that we have undertaken, that gross profit will be up next year in the 60 to 80 basis point range.

I'd like to add, under the volume the excellent new product stream that we have had domestically and internationally will continue.

The heavy spending, competitive spending will continue but will be as I mentioned earlier prioritized so the increase will be lower than the increase this year.

But media will be up and commercial spending will be up.

We expect as Delia said a lower tax rate somewhere in the 31.5 to 32.5 which is substantially below this year.

On top of all that, I think we have a very solid, very disciplined organization which is used to accomplishing worldwide tasks of some difficulty and I think everybody is geared up to do this and I think they will.

So, specifically, let me go down the possible P&L for next year.

Volume up strongly as I say, higher than the historical average.

Gross profit up in the 60 to 80 basis points range.

We feel that earnings per share will be in the incremental 6 to 10% range and we expect sequential improvements throughout the year.

So that was really what I wanted to say before we went through the divisions.

Obviously when Delia is finished we'll have questions and you can pursue any aspect of that that you'd like.

Delia, would you continue.

Great.

Thank you, Reuben.

Okay.

Let's go to North America.

Volume in North America.

Actually we're here in North America.

Increased 6.5% with very strong shipments in the two leadership core businesses of toothpaste and liquid soap.

The net of currency and pricing resulted in a sales increase of 4%.

Total commercial investment was up strongly and media was up almost 20%.

Media spending behind toothpaste was up substantially more than that and operating profit increased almost 5%.

We told you early in the year that we would step up our spending here in the U.S. to support the volume and market share momentum that we have been seeing and we have indeed done that.

With good results expect to continue in the fourth quarter and in 2005.

Volume growth has increased sequentially in each quarter of the year here in the U.S.

And our volume growth is even a bit understated since our measured inventories in the U.S. trade have declined.

Our consumption of all products combined as measured by AC Nielson, that is consumers taking our products off the shelves hit the highest level in a number of years.

Our increased spending has been behind both new products and the base business, we told you about Max Fresh toothpaste last quarter, the only toothpaste that contains mini breath strips with a patented formula.

That started shipping in late July and the performance so far has been excellent.

Our national AC Nielsen dollar toothpaste share was at a record 36% for the third quarter up almost a point and a half from the year ago period.

With a 37.3% share in the month of September.

Max Fresh accounted for about four share points in the quarter and Colgate Total toothpaste supported with new impactful advertising reached its highest share level ever 15.2%.

In the dish liquid category.

Our new products Colgate Oxy plus is helping to drive share as well.

That launch has also been supported by additional spending.

Some of you may have seen our new campaign with Doris Roberts the mother-in-law in "Everyone Loves Raymond".

Our market share in dish liquids for the third quarter was 38.5% up almost two full point from the year ago period and above both 2002 and 2003 levels.

In manual tooth brushes, our new tooth whitening tooth brush launched earlier this year has added incremental share.

Our share is up over a full point from the year ago quarter at 21.4%.

Looking forward we expect volume in North America to be at mid-single digit in the fourth quarter and operating profit should be up again even more strongly than in the third quarter.

Europe.

Volume in Europe increase 16% excluding divestments.

If you exclude the effects of our acquisition of GABA as well, volume increased 7.5%.

The top line was surprisingly good in western Europe given the very sluggish economic conditions across much of the region.

Volume in central and eastern Europe was up very strongly.

Currency net of pricing added 3.5%, overall sales in the quarter increased 19.5% excluding divestments and 14.5% as reported.

Total commercial spending increased quite meaningfully with media up 28%.

Operating profit increased 5.5%.

As I said volume growth was strong across the region with particularly good performances from the UK, Italy, Spain, and Greece, in western Europe, and extremely good results in most of the central and eastern European countries most notably Russia.

Across western Europe, our toothpaste business is growing very nicely.

Our market shares are up on a year-to-date businesses in 13 of the 16 countries.

September was oral health month across the region which added extra momentum to the business.

In Italy we achieved market leadership for the first time in many years, up to a record 23.2% of the market.

In the UK, our share on the year-to-date basis is 45% with the most recent share at 47% of the market.

New products which have contributed to this growth are Colgate Sensitive and Colgate Total Advance fresh toothpaste.

But, importantly our base business is growing as well.

In the tooth brush category our new whitening tooth brushes helped increase share as it has in the U.S.

Shares are up in France, Italy, and the UK, three of our biggest subsidiaries.

Just this quarter we are launching another new tooth brush.

Colgate 360 degree clean, a next generation high performance tooth brush designed to go beyond cleaning teeth to cleaning the whole mouth.

The tooth brush has a tongue cleaner incorporated into the brush.

The clinicals supporting this new brush are very strong, showing clear outperformance on a number of metrics.

Another new product which has launched in this quarter is the Clean Water technology for our all purpose cleaner business.

With regular all purpose cleaners the water in the bucket quickly becomes dirty as the mop transfers dirt into the water.

The dirtier the water the less effective the cleaning process as the mop is redepositing the dirt on the floor.

The new Ajax clean water technology traps the dirt molecules and then drops them to the bottom of the bucket.

Allowing the consumer to mop the floor with clean water.

This formula has been introduced across our line of cleaner products in Europe and will be supported with impactful advertising.

Turning to eastern Europe for a moment, business is good across the region.

And as I mentioned earlier,particularly in Russia a country of focus for many multinationals.

Market shares are up in all our key categories there as a result of our focused spending behind new and existing products.

In tooth peace our market share has increased 800 basis points since 2001 and we are growing both our premium toothpaste business as well as our lower price products.

In tooth brushes our share has grown from 28% in 2002 to over 31% in 2003 to over 35% on a year-to-date basis.

In shower gels, we have grown from 15% of the market to close to 30% in 2004.

Essentially doubling our business in what is a very fast growing category.

Now, just to give you an update on the GABA business, the integration is continuing to move forward well and a number of task force teams comprised of experts from both Colgate and GABA are looking at all our ongoing business opportunities.

GABA's market shares continue to be strong and growing and in fact GABA and Colgate are the only companies in Europe enjoying continued growth in oral care.

The outlook for GABA is excellent for 2005.

Looking forward volume in Europe in the fourth quarter is expected to increase at similar levels to the third quarter and operating profit should be up mid to high single digits.

Turning then to Latin America.

Volume in Latin America increased a very strong 9% excluding divestments with excellent volume across the region.

Both Mexico and Brazil increased volume in the high single digit range.

Exchange was a negative 4.5% resulting in a sales increase of 4.5% excluding divestments and 3% as reported.

Total commercial investment increased double digit.

Operating profit was down about 1% reflecting the strong spending and purchasing of higher priced raw and packing materials with weaker currencies.

As in other parts of the world, there are several countries in Latin America where we have significantly stepped up our commercial investment to meet competitive challenges and that has worked.

Looking first at Mexico, as you know Mexico is our largest subsidiary outside the U.S.

We recently celebrated our 75th anniversary in that country and we have leading market leading positions in virtually all of the categories in which we compete.

Competitive activity has been particularly heightened recently in three areas.

Toothpaste, fabric conditioners and shampoos.

This competition is from both multinational and local manufacturers.

In the toothpaste category where our dollar share is over 80%.

We have launched Colgate Triple Action to meet competitive entries in the low price segment.

That launch has been successful and our market share in the most recent period was 82.3% up about a half share point from the beginning of the year.

Our competitors' share has dropped by a similar amount and sits at about 10% of the market where it has been for many years.

In shampoo we've defended our leading position with Palmolive Caprice specialties with Pro V a shampoo and conditioner line for each type of hair.

The most recent variant was Caprice with wheat and honey.

Which has kept our overall share of the shampoo category at over 23%.

In fabric conditioners we've adjusted our pricing to remain more competitive in the market.

Volume shipment for fabric conditioners was very strong in the quarter and that will be reflected in our next market share.

Overall volume as I mentioned earlier was strong in Mexico.

The peso has been strengthening somewhat in recent weeks, so although it's still negative year-over-year.

But in general the Mexican economy is showing signs of strengthening which bodes well for the future of our business.

In Brazil volume was up high single digits.

The main Brazilian competitive battle has been waged in the toothpaste category where we have a commanding share of over 60%.

Encouragingly recent economic releases indicate the economic recovery is well underway.

The government is focusing on the task of returning to economic growth by the combination of a large primary budget surplus.

Lower interest rates, stable currency and large trade surplus.

All of this bodes well for our business and consumer spending.

In the toothpaste category we stepped up our commercial investment to meet competitive activity.

We supported the launch of Colgate Triple Action Mint which has been targeted directly at one of the competitive offerings.

Our share as read by scan track which measures our business in the modern trade has increased steadily over the last three months as the result of the increased targeted spending and we have seen good volume gains in the tooth brush category as well.

Looking forward, Latin American volume in the fourth quarter should be up modestly.

Given a tougher comparison than we had in the third quarter.

Operating profit is expected to be approximately even with last year's level as we continue to invest in some of our key markets.

Asia-Africa.

Volume in Asia-Africa increased 6% excluding divestments.

Pricing net of currency was a 1.5% resulting in a sales increase of 4.5% excluding divestments and 3.5% as reported.

Total commercial spending was up both absolutely and as a percent to sales and operating profit was essentially flat.

Volume was up nicely in just about every country in Asia offset by some volume declines in Africa.

Volume in Africa in the year ago period was up almost 10% creating a fairly difficult year-over-year comparison.

Competitive activity has been most intense in China, and India.

As with the other parts of the world competition is coming from both other multinationals and in the case of India some local manufacturer as well.

In both countries we have significantly stepped up media spending and that has resulted in good market share progress.

In China, we have launched new products in both the premium and low price segments.

Total 12, a new positioning for Colgate total toothpaste with 12 hour protection and 12 benefits has resulted in our share of the premium market being at the highest level this year.

And we continue to make progress in the lower price segment with Colgate Herbal Salt a new product we told you about last quarter.

Overall, our toothpaste share in China has maintained its market leading position at 32% of the market.

In India, we have gained share in toothpaste, tooth brushes, and tooth powder.

Our toothpaste share has reached its highest quarterly share this year and now is at almost 50% of the market.

In tooth powder our share reached a record 51% in August and in tooth brushes our share is at 30.2% up from 27% at the beginning of the year.

Elsewhere in the region our focus spending and new product activity has paid off as well.

In the quarter we reached record high toothpaste shares in Thailand and the Philippines.

Our bar soap business has also reached record share levels in Thailand and the Philippines.

And the success of Palmolive aromatherapy shampoo continues in the Phillipines with Palmolive the number 1 brand at almost 20% of the market.

And finally, in Australia our toothpaste share is up 70 basis points to 64.4% of the market.

Boosted by the launch of Colgate Sensitive toothpaste.

And we recently acquired some fabric conditioner brands from the Campbell company which gives us 83% of the fabric conditioner segment in that country.

Looking forward, volume in Asia-Africa is expected to be up about as much as it was in the third quarter, in the fourth quarter.

Operating profits should be equal to last year's levels.

Finally, Hills, volume of Hills increased 3.5%.

Pricing and exchange added another 5.5% Resulting in a sales increase of 9%.

Total commercial vestment was up double-digit with a very strong increase in media spending.

As we mentioned to you several weeks ago, the rise in commodity prices in our pet food business has been extremely steep.

Although we have taken some price increases here in the U.S. to try and mitigate this, they have not yet fully covered the cost increases.

As a result our gross profit at Hills was down 210 basis points.

This combined with increased spending resulted in a declined operating profit of about 4%.

Volume at Hills is up both domestically and in our international business.

In the U.S. in August we've launched several new variants in our large breed line for Science Diet, a light variant and one for senior dogs.

Importantly the large breed category is one of the fastest growing segments of the pet food market.

As you would expect this launch was supported with in-store activity, as well as on line and other advertising.

Overall Science Diet volume increased 4% exceeding category growth.

We expect to announce more new products by the end of this year which should continue our momentum into 2005.

Our International business is strong across countries and regions.

We have increased our spending here as well.

Supporting launches such as Science Plan, Natures's best, and Prescription Diet M.D., Hills volume is expected to be up mid single digit in the fourth quarter with operating profit down modestly.

For 2005, we expect Hills growth margin to increase meaningfully as agricultural commodities continue their moderation and the full effects of 2004 price increases are felt.

So in summary, we are encouraged that our investment strategy is working and that we are building a strong platform to continue our historic profit growth in 2005 and beyond.

That's the end of our prepared remarks, Audra, and I think we could now open it up for questions.

Thank you. (OPERATOR INSTRUCTIONS) We will go first to Bill Piccarillo at Morgan Stanley.

Good morning.

Reuben, question when you talk about the acceleration of the funding, the growth, if you could talk about some of the kind of programs that you are looking at compressing.

Last year you had talked about the plant consolidation program over the next couple of years.

Are you also looking at broader reorganization?

What other kind of programs?

We are certainly looking at all possibilities.

The primary emphasis will be on physical facilities and also finding ways through the new mechanics we are getting through SAP, finding ways to change over the organization somewhat to make far better use we would hope out of our promotional spending.

But, there will not be, if underlying question is will there be a worldwide cataclysmic reorganization that shakes everybody up, I don't think so.

We are an organization that has changed continually over the years and that will continue.

This is a group of projects which we have done in the past, this is more so and more concentrated.

And we would hope would have very similar if not better effects.

But, rather than do it methodically over time.

We are going to very carefully prioritize it and do it more rapidly.

I don't think you will see, in fact I am certain you will see something that would rend R-E-N-D our culture or change our way of doing business.

Great.

And then just a question on pricing which turned more negative in Europe and Asia and you alluded to in your prepared comments some of the spending in markets like China, India, Russia.

When you are looking out to '05, you talked about a moderating a level of increase and some of the market spending.

Does this include on the pricing line or should we still likely see corporate pricing running down at a 2% type level through '05.

Well, it is a good question.

Because obviously, that's an essential part of the financial planning.

I think that if you look at recent trends, the last year, for a year as a whole, we had a, actually a plus five and it's plus half a -- 50 basis point .5%.

With a negative in the last part of the year.

That negative has continued this year.

And will be for the full year this year will be between 1 and 1.5% negative that is expected for the full year next year to be about half that or less.

And that's again based on an expectation country by country that can always change but that is our current expectation.

There is an interesting aspect to the pricing.

I know there's a big number for pricing in this quarter in North America.

Which is 3%.

Interestingly enough, the U.S. portion of that, and don't forget that Canada, the Carribean, and our Colgate oral pharmaceuticals business is included in North America.

The U.S. portion of that is about 1.7 if I recall correctly.

Is that right?

And the top Colgate oral pharmaceuticals rearrange their selling terms and other aspects which had a meaningful overall effect which belies their size and Canada met a price decrease by our major competition up there which happens to be the major competition in this country.

And interestingly, of the 1.7 points, more than half is in detergents.

Which is not the highest priority business for us as you know.

Actually a small fraction of that is in our key business is toothpaste.

Thank you.

Okay, thanks Bill.

Next question is Bill Chappell at Suntrust Robinson Humphrey.

Good morning.

Just wanted to follow up on the gross margin question.

Just to clarify, did you say that you're kind of moving away from the 61% gross margin target by '08 and just staying kind of high 50s to low 60s now?

No, I don't think so, Bill.

What I did say last time in response to a questions by one of the sell side analysts.

That if we don't think we are going to make it, shouldn't we say so, and I said if that is the case, we will certainly do so.

The plans being finalized now, are going to change our outlook going forward and the plans will include perhaps some acceleration of lower margin divestments and so on.

And so, I did -- we're not at all backing off that now.

But we did say, I did say, and I meant that it should be in the high -- the 59 or so range to the low 60s and when we are able to refine that further, presumably sometime in the fourth quarter we'll be more explicit about that.

That was the long term goal.

We raised it as you know when commodities were a bit on the downturn.

I don't think anybody envisioned $55 oil then, but nonetheless we clearly understand that in order to keep our profitability going and to fund these increased levels of spending, that our ross profit efforts over the years which have been very successful have to be even further prioritized and accentuated and that is indeed happening.

Okay.

And just on the commodity cost, what kind of a lag time did you see in terms of seeing the expenses run through.

I mean, we're seeing soy beans obviously dropped from a good harvest, but at the same point oil $55.

Will climbing costs be even worse in fourth quarter and then it starts to alleviate as you go first quarter, second quarter, next year?

Well, we -- in our projections for next year, whereas the cost at Hills went up very substantially this year.

And next year, and again, this doesn't start off this way.

But next year Hills cost as my recollection of numbers is expected to be down 2.5%, which I think is kind of modest off these very high levels of this year.

And so that by itself is a very important aspect and Hills gross profit is expected to be up I don't know if you mentioned the figure Delia, but I think it's over a hundred basis points next year.

Oil, obviously who knows.

We have been conservative, the oil estimate that we're using in our cost projections are 3 or $4 higher than most of the banks and everybody else are recommending but one never knows.

Okay.

Thank you.

Thank you.

Next we'll go to Amy Chasen with Goldman Sachs.

Hi.

Firstly, on your -- the sort of preliminary '05 guidance that you gave, do those numbers include any costs that might be associated with accelerating the funding the growth program.

No, they do not.

Okay.

And can you give us any further color.

I know you obviously don't know what the amount is.

But on how you might account for that, whether you would absorb that or whether you envision some kind of one time charge?

I can't really comment further, because as I told you last time and this time we will be very explicit when the appropriate information is at hand and which should be within the next couple of months.

But I can say that for example, we have historically as you know absorbed that in the P&L.

Because we thought that was the better, I am repeating myself, I've said this since (INAUDIBLE).

But, because we thought that was the better to do it rather than taking a single charge.

In this current quarter for example our restructuring and one time charges are about a penny or so a share.

But it seems that not only is that, I won't say not appreciated, but that seems to muddy the water because our balancing those off with the occasional one time gains that we get seems to be misinterpreted.

So, I think, you will see very clearly in the future when we get a one time gain.

We will tell you what, precisely what it is and if we should be balancing it off then we will tell you precisely what that is as well.

But, I can't comment whether we will continue the historic practice or change it, but you will see shortly.

Okay.

Can you also extrapolate a little bit.

You said that your volume growth in '05 would be the above the historical rate.

I just don't fully understand that.

Because, I understand that you want to continue to spend a lot of money or you want to continue to spend to support your competitive position which seems like it's in a pretty good spot.

But why wouldn't the gross be above historical averages?

Why not spend a little bit less and have a more normalized volume growth number?

I am afraid it's not that easy, Amy.

But we will continue -- where our strong leads are threatened in any way we will continue to spend heavily.

Where the competitor has been beaten back so to speak and is either at a very low level or withdrawn, we can go back to more normalized levels.

On balance since I don't think that's going to change specifically in the United States and China for example, just to take two examples and perhaps parts of Latin America, my sense is that the spending will be higher.

But, we are coming off higher market shares and higher momentum, higher volume momentum.

So that our -- we have historically said that our range in volume is 4 to 7 quite consistently.

It has been, and it's been better I think than many of our competitors.

Our average over the last decade has been about 5.,you know, I was going to say 5.1, somebody said say 4.9, but whatever.

It's about 5% and that this year we expect to be as you know, we are already are better than that and that looks like the way the plans are shaping up.

If that is -- and what would be our aim in, just interesting question, why would we want to reduce our volume since we are going to be very careful in prioritizing our spending and as we have historically not spend where we don't have to spend to accomplish our strategic purpose.

I am not sure I quite understand.

I am not suggesting that you shouldn't you know, go for it when you can, it's just that it seems like it's coming at a high cost. and I guess, you know, why then -- why are you spending so much to get this higher number.

In other words, why not just spend to the level that would allow you to generate a more normalized volume growth number, or said another way, if the market place is so competitive, why are you posting this strong volume number or this abberationally strong volume number?

I don't know, maybe we can follow up off line.

I'm perfectly willing to talk about it.

It's very interesting line of questioning, seriously, Amy.

The price pressure that comes around the world is not of our making, I don't really believe and that naturally it would be in everybody's interest to have in a rising raw and packing material, it would be better not to be under that pressure.

But, when one is under that we must meet it to ensure that when we emerge whenever we do emerge that we are in a far better competitive position.

For example, in -- let's take a look at the shortfall versus the consensus of nine cents in this concord.

Of that raw impact materials above what we had expected going in were about two cents.

The tax rate was about two or three cents depending on what base you take.

The extra spending was about six or seven cents.

And the extra volume we got, was two or three cents positive the other way. all that together gives you the nine cents.

And then what you're saying is could you reduce the six or seven incremental cents and live with somewhat lower volume.

Yes.

That would be ideal and yes when I say prioritizing spending very carefully and very decisively both on a geographic and a product line basis, that's essentially what we will be doing.

So the answer is yes.

It can't be done quite as simplistically as you are pointing out.

But it's a -- I think your instinct is correct.

Okay.

Great.

Thank you.

We'll take our next question from Wendy Nicholson at Smith Barney.

Hi.

My first question has to do, Reuben with your succession and whether, kind of the state of change if you will that the Company is going through right now effects your thinking on timing.

I mean, is there a trade-off between sort of a need to shake things up internally or offset off maybe by a need for stability at the Company over the next couple of years?

What's your thinking.

Stability of the Company is not a function necessarily of me as an individual, it's a function of a, I think, an officially functioning organization led at the senior and intermediate and junior levels by experienced people who have been around a long time and know what they are doing.

But I assume that you're leaving and Bill Shanahan is leaving, I mean, that's going to prompt a whole rolling of changes through the organization I guess is my point.

To a certain extent.

Except that you know that for a number of years, there have been three members of senior management who are expected to take on the reins for the next generation, two of the three are sitting in the room with me now.

You know from the announcement of last year, that that continues.

As we stand here irrespective of whether we made these numbers for this quarter, or didn't make these numbers that will continue.

It's these three people who are going to be taking over basically as schedule.

It's been arranged so that the disruption to the organization will be minimal and my sense is there is and should be no change.

Okay.

Tell me your thoughts, Wendy?

Maybe be best to do that off line and not put me on the spot.

But I guess it's your assumption that all those three people will be there a year from now and that the change will proceed as you had envisioned?

I'm looking at them.

Lois, are you nodding?

So far so good?

So far so good.

Both of them are sort of nodding.

Semi positively.

Okay.

Fair enough.

Well, that's a relief.

If we can turn to the share buy back announcement today.

He is not here, but he is actually in Mexico.

He is probably vigorously nodding.

I hope so.

If we can turn to the share buy back announcement.

The 20 million shares kind of came as a surprise to me.

Because I thought on your earning's call just a few weeks ago, you made the comment that with the incremental debt from the GABA acquisition.

You thought that the priority in terms of uses of cash would fall first toward debt repayment and share buy back later.

Has something changed there?

Just in terms of -- do you think the stock is so darn cheap or because you think you've got a better handle on what free cash flow is going to look like.

Yeah.

It's A, I think it's a combination thereof.

I would never say a stock is cheap.

Because that is not our job, that's your job.

But given the prices it's very much the Board's intention that we should buy more shares.

Also our cash flow has projections that appear to be somewhat better than we had thought previously.

But most importantly, we again on a disciplined basis, we believe strongly in our double A minus, rating and we talked to the Board at the last meeting.

Earlier this month about this possibility and we what we agreed with them was we would lay out what our expectations on a balance sheet basis were for the next 14 or 15 months and go to the rating agencies.

Are we allowed to talk about that?

And go to the rating agencies and explain everything that we saw and explain the desire to buy and give them the velocity at which we were going to buy and the rating agencies were very supportive and based on our history and all the projections and what they know about us they felt quite comfortable about that I don't know -- they had the treasurer in the room I was there and the CFO, but that is absolutely true.

Yes.

So the answer is that we unfortunately in this case can walk and chew gum and the -- but certainly based on whatever measure you want to take this is not a bad time for us to be buying stock.

As you know historically we have taken advantage of the historic temporary dips in the stock to buy a fair amount of stock.

And that is materially added to -- about a third of our market cap has come from buying back stock at the appropriate times.

And I'm sorry, did you say that reflected in that assumption is any further increase in dividend.

Because I think it's been almost seven quarters since you've raised your dividend?

No, I think, it's -- how many quarters?

We raised it in the first quarter of last year.

We have a long-standing 25 or 27 or 30 year history.

I don't know what the number is of increasing dividend payments each year.

And I think that will continue.

That means, you can calculate as well as I can, that it has to be raised by a certain point or you lose that.

We don't intend to lose that.

Got it .

That's helpful.

Thanks Reuben.

We'll move next to Andrew McQuilling at UBS.

Thanks very much.

Reuben, I guess, broadly it sounds like competition is at least easing somewhat in Latin America and stable at high levels in Asia and Europe.

Can you talk maybe by market or by product where things are getting worse and where in your own words where has the competitor withdrawn?

Where do you think the fights are going to last longest?

I don't know that I'd -- don't let me say the competitor has withdrawn, because that's up to them not up to us.

It depends on category.

For example in Mexico, for example, as Delia I think pointed out they -- our competitor, one of the competitor's launched, relaunched an existing brand there.

Same brand as in the United States.

At a lower price with very, very, heavy advertising coupon sampling and so on.

And our market share temporarily went down a point or two to about 80 and now it's back up 82 or 3 and as Delia said they are about the level they have been for many years.

The ex General Manager or the ex President of our Mexican Company is sitting in the room and that battle has been fought a number of times.

So that it is probable our overpowering spending in Mexico, in that category may be less next year.

At the same time we are by far the market leader with 50% of the market or whatever in fabric softeners in Mexico and there is an assault on that.

So we have some great new products and some heavy spending.

So it depends.

Overall, based on an analysis country by country, we are convinced that while we will increase media more than we normally would and we will increase commercial spending more.

It will be less than this year and therefore an increase of 6 to 8 basis points can in fact come about.

But, let me try to answer you a little more specifically.

In what we had considered the countries in which the competitor pressures were greatest, our market shares and I looked at this yesterday, are up in every -- in our key categories are up in each of those countries.

That's not to say in a couple of them that the competitor's market share is not up as well because there are other people in those markets.

But in every case we are -- our market shares are up.

Reuben, is it fair to say, I guess, you mentioned that e competition from multinationals, as well as locals, is it fair that, you know, multinational, new multinational competition or increased pressure has put pressure on the whole market.

Everybody is scrambling to defend?

Is that what's going on?

Where the local--

It's not really new multinational.

I mean, the multinationals almost with -- and I am trying to think around the world.

There is not a country in which we talk about where there is competitive pressure.

It's anew multinational.

Fair enough, but there's nothing about market growth slowing such that people are forced to scramble more for share.

There is no real deceleration in category volumes that you see internationally?

That's very tough to read.

We -- there is -- I guess the exception would be Europe.

Is the category, is -- the categories generally are slowing in dollar size, primarily because of the growth of hard discounters and so on which have a much lower pricing system.

So you see the -- in Europe, that the spending on -- commercial spending pricing in this case, in Europe is heavy and there is going to have to be some prioritization there too.

Because whether or not in that kind of environment, the total spending can be kept at those levels, is a whole another question.

But again, that's part of our whole prioritization process which we do fairly well.

That's not the case in Latin America nor Asia nor in the United States.

Reuben, one short one maybe if I could.

Media advertising for 2004, can you say what it's going to be?

The media spend that you disclose once a year?

Yeah.

And we're going to be disclosing our advertising from now on each quarter in the queue.

People have complained about that or asked us about that.

So we will be disclosing the advertising each quarter and we will break out the media as well.

But for this year, media spending, hang on one sec.

I will give you the exact price number.

Total advertising as it appears in the P&L, will be up more than 10% this year, it was up about 11% in the quarter.

I know I am not answering media which I will in a moment.

And we'll be up even more, we think in the fourth quarter, media will be up also more than 10%.

It was up in the high teens in this quarter.

Worldwide.

And I might add that it has a really a much bigger effect in terms of business building than those simple, good numbers would indicate because in the U.S. you remember that I told you that a lot of media was taken from Colgate toothpaste and put on Simply White, that is now where it should be.

It went behind some very tough advertising I might add if some of you have seen it on Colgate Total.

And some good advertising on Max Fresh and so that the toothpaste advertised media in the U.S. has almost doubled as I recall.

I don't know the precise number.

Reuben, did Delia mention in her prepared comment what media spending was?

Delia did you mention it?

She didn't mention it, I am mentioning it.

Okay.

Okay.

I mean is it okay if I --

Oh, yeah, please, please.

Okay.

Andrew, thanks a lot.

Thank you.

We'll go next to Linda Bolton-Weiser at Oppenheimer.

Thank you.

You had mentioned in the prepared remarks some increased spending in health, could you elaborate on the issues surrounding that increased commercial spending?

Sure.

I think it is very much, it is a component, same components as in Colgate although relatively speaking they spend less media.

It is increase in couponing, trial devices, allowances, and overall spending.

But the reason, the prime reason that they are -- gross profit is down is the sharp spike as we talked about earlier in raw and packing material costs.

Linda, you might be interested to know that whereas this year versus the previous year our total raw materials and packing materials for the Colgate parts of the business are up about 2.5% They are up 7.2% for Hills.

So the prime driver in gross profit is not the increase in commercial spending although it is up.

It's the increase in cost and you recall also there was a substantial price increase taken.

Although that has not, this timing has not had an effect throughout the annual -- the year.

That's why we expect next year the gross profit to go up in excess of 100 basis point at Hills.

Okay.

And secondly, I just wanted to ask, I think you were asked about this last quarter in terms of your undistributed earnings.

Some of the companies have been talking about converting that in some way to cash and then repatriating it back.

Is there any possibility for doing that in your case.

I believe the amount is 1.3 billion.

If not why in your case would you not be able to do that?

Well, we would certainly be able to do it.

It is the law of the land.

Of the, of that 1.3 billion, already about 3 plus -- 300 million is in cash.

In various locations around the world and more as you say could be converted to it if you wanted to.

However, we may or may not do that and because that money is now used for inter-Company loans and other aspects in which the return on the money may very well be higher than bringing it back to the United States and retiring debt.

But nonetheless that is obviously being examined carefully and on a country by country and a situation by situation basis.

I would not assume though that there would be any meaningful benefit or negative from that.

But rest assured that we will find ways to invest that fund either over -- those funds, either over where they are or back here.

Okay?

Okay, great.

Thanks a lot.

Thanks, Linda.

We will move next to Connie Maneaty at Prudential.

Good morning.

I have a couple of questions.

The 360-degree toothpaste and the Ajax clean water detergent, whatever that product is.

They look like very interesting new products, so my question is why are they being introduced in Europe first and not simultaneously in the U.S. and Europe.

Lois is speaking.

In terms of the 360 tooth brush, I think you would expect to see it in the U.S. pretty shortly and in terms of the clean water technology, as you know, we are a very, very big factor market leader in western Europe with our Ajax brand and that is our lead country.

Here in the U.S. we don't sell Ajax ATC, so I don't think you'll see it here, but rest assured you will see it shortly in other parts of the world.

Okay, great.

And I have a memo dated October 17, that says these are new products that have been announced to the sales force and the 360 tooth brush is one of them so you know probably now before anybody else.

But, yes, it's a terrific tooth brush, it really is, for those who haven't heard about it, it's got a tongue cleaner on it and the product boast is the electricity for it, you know, No, it has a got a tongue cleaner among other things.

Okay.

My other question is and I think I asked you this on the call last time.

Your share in the U.S. that you quote for toothpaste, your lead over Crest doesn't include all channels, do you have your all channel share?

We do not have an all channel share, Delia?

We don't because we are not sure that the current data is robust enough.

We don't think that the panel that's used now really captures this business as it should.

Be that as it may, I mean I think you have to look relatively and the market share has gone up for the six -- for the last six months and the gap between us and our nearest competitor is very high and we did hit an all time record of whatever the figure was 37.5.

So my sense is on a relative basis it's good.

I can tell you that our toothpaste business in the United States is very good and on a worldwide business, interestingly, we haven't -- this question hasn't been asked.

But on the core business, I am looking for the core business chart, is that if you look at for the third quarter, our toothpaste business worldwide was up in volume 12.6%.

Manual tooth brushes which we just got, I think we just got the world leadership was up 14%.

On the other hand, the HTD business at the other extreme was down 18%.

So, if you add up all of those it comes out to be 8.7 volume but the categories we really care about toothpaste up 12.5.

Manual tooth brushes up 14.

Personal up 4.5, I think that's pretty good.

Same thing on the year-to-date, and so that all, the numbers seem to jibe that the market shares, the volume, the results, the anecdotal results from the countries under which are intact the fact that the toothpaste and the tooth brush and the total oral care business plus the personal care businesses are growing much more rapidly than the total Company, it will speak well obviously for mix and I think that that's one of the positives leaning towards an increase in gross margin as well as volume continuation next year.

If I could ask one last question.

You said that you thought earnings next year might go up 6 to 10% with a sequential improvement.

Should we assume then that first half earnings will be flat to down?

I think we'll give you more guidance on that when we have the, when we talk about the acceleration.

But answer is, they would probably be flat to slightly up in the first half.

Many thanks.

We will go next to Joe Altobello with CIBC World Markets.

Thanks, good afternoon.

Just want to go back one second to that September 20, conference call and I think when you guys provided guidance for the third and fourth quarter, particularly for the third quarter you gave a tax rate expectation about 32.7, you were obviously higher than that in the quarter and still made your numbers.

I was curious what was the offset that helped you do that and should we read into that that trends improved dramatically in the second half of the quarter?

I think Joe, I went through it before as the composition of the 9 cents and basically, I said there that volume was better than anticipated by a couple of cents a share.

And basically the volume paid for the increase in tax.

I mean, that's an oversimplification.

Because, there's a lot of ins and outs.

But that's basically what happened.

Okay.

So even at that late date, after that, the volumes or at least the data you had as of then were improving.

Yeah.

We had -- at that point we had two months -- the two months to date was very good from a volume point of view.

But we were cautious about projecting it for the full month.

Because it is always a dangerous thing to do.

In fact it not only maintained that rate but increased in the third month and the finish especially in Latin America and in Europe was better than expected.

Actually North America as well.

Okay.

And staying on the tax but looking ahead to '05, you are now looking at 31.5 to 32.5 I think on the last earning's call review, you guys said that you were looking for 31-31.5 and you commented that that was a worse case scenario.

For next year.

Yeah.

Why the lack of visibility to the tax rate.

I think on the last, September 20, call, you went to great pains to point out that the tax rate is what it is and it's tough to--

I guess visibility I think that anybody who has total visibility within 100 basis points of the tax rate on a multinational company in a couple hundred countries may be fiddling with reserves or doing some other things.

Because, if they are really recorded as they come in which they really have to be by regulation.

There are a lot of things that can influence it and there was one in particular this year that happened and will happen to a certain extent next year which is why the tax rate is not below, it is not below 31.5 to 32.5.

And that is, is that depends on where you invest as Delia said.

If it is a low tax rate country and for example, we pay -- our taxes are low to nonexistent in China so every dollar you spend there will certainly pay off in the long run but it basically is gross to net.

Gross and net.

It is not just a gross and then tax effected.

It basically drops all the way through.

So visibility on tax is a very interesting thing because, so far in my limited 20-year history of doing this is that we at least seem to get yelled at when the tax rate is higher than expected as well as when it's lower than expected.

The best we can do now is give you a range.

We will endeavor to make it as low in that range or below the range if possible.

We will bear the slings and arrows at that point of people saying that we made it through taxes but nonetheless that'swhere we expect it now.

Fair enough.

Thanks, Joe.

We'll go next to Lauren Lieberman with Credit Suisse First Boston.

Thank you.

I guess I have a couple of questions, but since it's getting long I will keep it to just two.

First on GABA.

I wanted to see if we could get an update.

But integration marketing, distribution work that is currently underway and also anything about a competitive response that you are seeing in the markets that your competition oral care in Europe might be a little bit different than what we're seeing in the U.S.?

GABA seems to be doing quite well, Lauren, the market share in Europe is now as GABA and Colgate combined is 33.5 or so in toothpaste which is up from what it was and up from our projections when we made the acquisition.

Secondly, they are in a, on a EBIT basis modestly better than they had -- we had been promised and we promised ourselves and the integration is going in a methodical and well thought through and I think well executed way.

It is expected next year that the EBIT this year which is modest by our standards as a percentage of sales because of the Company was run as a private Company, will almost double next year and there may be some up side in that.

Overall looking, I am not aware.

Although somebody else in the room might be of any particular consumer competitive response.

We have not seen that.

Okay.

How about looking within the GABA portfolio, was there anything that has been a surprise -- or thinking about the product that you bought with this acquisition.

Giving you opportunity to expand into the U.S. and enhancing unit product pipeline.

Well, I don't know about the U.S. but there are a number of products and perhaps technologies that more than we had expected that we are going to spread beyond the existing countries.

Like a time line for that, is it just way too early to talk about?

Or is this like--

I think we tend not to talk about new products before they come out.

But after we complete our budget for next year and so that probably early next year I think we will be able to talk more specifically about that Lauren.

Okay.

And then just the second question is about divestitures.

In the financials that went out with the press release this morning.

I noticed that there was a gap between reported sales and then extra vestitures for Asia.

I didn't know of anything being sold in Asia and we're also not seeing anything for divestures in the cash flow statement so maybe I am being dense but I feel like I am missing something.

The division, you are right, Lauren, the division is Asia-Africa and there was in Africa a divestment of detergents.

Okay.

And that was not previously announced?

Is that--

It's part of the European, I mean, it is controlled out of Paris in our global export area and so that it goes down there a modest amount but organizationally it is considered in Europe.

So that's the only -- it's a modest amount.

So it would have been part of the fourth quarter divestiture of Europe?

Yes.

Exactly.

Okay.

Great.

And I have one more quick thing.

You were talking in detail on the acceleration of cost savings programs.

Keep talking about letting us know something in Q4.

Does that imply there is going to be a conference call or a meeting or something mid quarter or are where we're going to get this information?

Well, I think, our practice has always been with anything of material importance, we would both issue a press release and have a conference call at least have a conference call.

We haven't had a meeting in a long time.

I am not sure if that's terribly productive in terms of use of everybody's time but certainly we have historically done that and certainly since FD we have done it.

We've had actual incentive to do it.

So the answer is yes.

We will fully disseminate anything that is required.

Okay.

That will be during the fourth quarter?

That's the expectation.

Yes.

Okay.

Great.

Thank you.

Thank you, Lauren.

We'll go next to Andrew Shore at Deutsche Bank.

Good afternoon, Reuben.

If you look, at the six major markets where you're facing competition in oral care, can you tell us how much lower are your operating margins?

I know your shares of volume margins are doing well, but how much lower are your margins?.

I'm sorry, our operating margins?

Yes.

In the six major markets.

If you take the U.S. oral care market.

Russia, China, Mexico, Brazil, and Indian.

I can give you -- do we have the worldwide figures?

The operating margin for the year interestingly will be I think slightly up worldwide.

Do you have those?

I prepare those for each of those markets but not by product category it's just on an overall basis.

The operating margin, I can tell you is down in China, Russia is up, Mexico is in that category, down.

Because of the spending.

India is up.

Hong Kong which is a defense market is down.

And I can give you a total of all of that: You do know that our operating margin in that category is quite a few points higher than the total Company and it's down in those countries about 100 basis points max and it's up in some countries as well.

Andrew?

Yeah.

I am here.

Thank you that was helpful.

And then Reuben, just on a softer side comment.

I have spoken to some people albeit in the U.S.

Colgate business and I asked them about morale.

And I was just wondering, can you tell me what you think they are saying about morale at Colgate?

Andrew, and how can you, you can't doubt for a moment you are a very experienced person, that when everyone loves you morale is higher than when less people -- I hesitate to say no one loves you but when less people love you.

Interestingly the morale in the U.S.

Company is quite high simply -- anyway that's my impression and we do a fair amount of surveys simply because the U.S.

Company is really booming right at the moment.

Clearly, there are in the middle to senior levels of management with the stock of 43 or $44 versus three months ago at $55.

People from their own point of view, see their net worth not as high as it was and so on and therefore that by definition impacts morale, however.

The Company has experienced this before and in the crash of '87 and '95 when earnings went down and several other times and as you would expect there has been, I did a videotape which was then relayed to people around the world and a whole bunch of different languages and talking basically, about the same thing I talked about today.

The fundamentals are good.

We have got to find ways to accelerate or fund the growth.

The programs are in effect.

Our market shares are good.

And by definition when there is criticism of a very proud Company, morale suffers.

I can only tell you from my own personal point of view, that I feel this is trenchant as it always is, the downs are trenchant and the ups are trenchant and it tells us to keep punching away, keep doing what we're good at and it will come up.

Okay.

And then finally it seems like you have a lot that you want to tell us--

How is your morale, Andrew.

It's been okay.

Could be better.

Good, good.

My morale will only increase, Andrew, when you start your comments off by saying good quarter.

Well, give me a reason to.

Reuben, can you just, you know, it seems like you have a lot of stuff that you want to tell Wall Street in the fourth quarter in terms of plans for '05 possibility of restructuring.

Any plans for an analyst meeting.

There are no current plans and when you say there is a lot of things.

I don't know that there is a lot of things, there is a specific thing which is the how we are going to accelerate funding the growth programs that are laid in there for the next few years.

We have given fairly good guidance for next year.

Certainly explicit guidance for the fourth quarter and beyond that I think the market share data here and abroad does speak for itself.

We are going to have a general manager's meeting in April of next year.

Where Lois and Javier, and Ian, are going to be talking about the next few years, it's not inconceivable that after that, that same message will be given externally in a meeting if that's appropriate.

Okay.

Great.

Thank you very much.

Thank you, Andrew.

Next we move to Christopher Arret at Merrill Lynch.

Hi.

You said, I think '05 spending obviously is going to be higher but not to the same magnitude that we saw in '04 Is that just a function of comping, you know, this Q3 and Q4 that we're getting near.

I guess said another way, I mean will spending, commercial spending be higher year-over-year in the second half of '05 would you suspect?

It's -- comping is part of it but it's primarily the prioritization Chris,that I talked about earlier.

That there are, the incremental levels don't have to be nearly as much.

Not nearly as much -- don't have to be as much.

So you wouldn't necessarily expect spending in the back half of next year to be higher.

No.

And when I said it's going to grow, that there will be sequential improvement and when Connie asked about profits flat.

She said spike down, I said slightly up, that's because the spending is laid in pretty much across the year.

And the comps are obviously due in the second half and the first half.

I thought Delia had mentioned Pet Total commercial spending was maybe 6.6% of sales in the quarter.

Did I misunderstand that.

Yes.

That may have been media.

I don't know what the 6% is.

She is shaking her head.

She doesn't know, Chris.

But it's not 6.6% of sales.

Got it.

Can you guys tell us what percentage of cogs raw impacted materials in total represent?

What does I'm sorry?

What percentage of cost of goods sold does raw and packing materials represent in total?

Hang on one second.

Well, I mean, almost by definition, well, I was going to say the simplistic way is taking the reciprocal of the gross profit, but it's -- raw packing is about 80% and labor depending on the area of the world, but labor is about 20%.

Great, thank you.

Well go next to John Sheusi at J.P. Morgan.

Okay.

Let's if we could, we'll take this question and perhaps one -- how many people are in the queue?

We have four more after Mr. Sheusi.

Well, why don't we take those four and then lets call it quits.

Okay.

John.

Okay.

That puts the pressure on to be quick.

Reuben, I was wondering if you could tell us what European operating profit would have been X currency and X GABA because it looks like it was down pretty meaningfully?

Hang on one sec.

It was -- the European operating profit was up 5.4%.

There was no operating profit.

There was no GABA operating profit in the quarter and currency it would have been flat.

So no GABA operating profit in the quarter?

Very miniscule, I mean rounds to zero.

Okay.

Thanks very much.

Next we'll go to Elaine Mills at Think Equity.

Hello?

Miss Mills, your line is open, please go ahead.

Yes.

Good morning can you hear me?

I can hear you.

Great.

Thanks.

Just coming back to this media question.

I apologize if I am beating a dead horse a bit.

But I thought that I heard Delia mention a figure of 10.6% for media advertising globally in the quarter.

Is that correct?

That's advertising.

Media, plus consumer.

Advertising, what is in the -- yes.

Coincidentally.

It was up -- it is 10.6% of sales.

Correct?

Yes.

And it is also about the same.

About 11% as an increase.

Don't tell me the numbers are the same.

Maybe that's confusing.

Great.

That's very helpful.

Could you just comment sort of more philosophically what you believe an appropriate level of spending for that line item might be going forward and sort of more broadly share some brief thoughts about the appropriate marketing mix for the business given the competitive environment?

Well, I think that there is no question that over the next couple of years the advertising which is more than half media, will continue to rise so, that the percentage to sales should go up somewhat.

And again, when we talk about generating gross profit, the prime purpose of generating gross profit is to pay for that line and to pay for the elements of commercial, total commercial spending that are long term beneficial.

There are about -- there's an analysis here which we haven't talked about, but about a quarter of the gross to net spending or the commercial spending is less than good that is to say that it's moneys to the trade that you could argue that you get very little out of.

The other 75% of the gross to net is good in the sense that it does build position, display, trial, and ultimately market share.

So, the objective is obviously to spend additional funds in both media and the good parts of commercial spending and pay for it by increasing the gross profit.

So that it's long been our objective.

Hasn't always been achieved but it's long been our objective to have the P&L mechanics work so that can happen.

Historically what has happened is the increase in gross profit has been enough to cover the -- any increase in costs that we incur in raw and pack materials and at the same time increase our total commercial spending.

As you see at the current moment, it was not quite adequate to do that and therefore, it had to come out of the bottom line.

But everything we are doing is designed to allow the process to continue, that's sort of a philosophical answer but nonetheless real.

No, that's very helpful, Reuben.

Thanks very much.

Just an another quick question.

Just a clarification.

Did I hear you correctly in mentioning that you are looking at potentially reviewing level of spending going on in the European market.

That it might not be sustainable going into next year or did I miss-hear you.

Because you've obviously had a very high volume pick up this quarter and the business seems to be doing well in spite of the worsening conditions in the European markets.

It's not unreasonable that you would draw that conclusion from what I said.

But I think what I was intending was that Europe will be the recipient as the rest of the world will be of a very careful prioritization analysis to make sure that we get the most for each dollar spent.

The markets are declining in Europe where they are growing in other areas of the world and I think you would expect us as shareholders to make sure that we get the maximum value out of each dollar spent.

To a certain extent the competitive onslaught has been a broad scale offensive and we have met it within reason on a broad scale basis as well.

We have a lot of new tools, and we have a lot discipline to make sure that we prioritize it appropriately and make sure that we are getting the appropriate return on the various investments.

Great, thank you very much, Reuben.

Thank you.

Next, we'll go to Ann Gillin-Lefever at Lehman Brothers.

My questions have all been answered.

Thank you very much.

Jason Gear at A G Edwards.

Okay.

Thank you.

I just have two quick questions.

First you were mention about the $10 million restructuring charge.

If I missed that what was that for and could you give an update on the Columbian detergent sale, when should we expect that to hit and is that going to -- the gain on there is that going to be included in the guidance that you gave for the fourth quarter?

It is not.

We have not received an okay from the Columbian government, as I said last time it may close in the fourth quarter it may close in the first quarter but anyway that's a one time gain and we'll disclose it as such.

The as we have said, we have over the period of each year, we absorb various one time and restructuring charges and I have here a list of 1,2,3,4, 5, 9 or 10 items, New Zealand, Asia, Hazel, Europe, Geneva, and so on, of $12 million worth of restructuring charges and one-time charges that had been absorbed in the nine months to date.

After tax, so that's about two and a half cents that has been absorbed.

As I say in other situations and other companies, who are taking a different philosophical view, those would have been included into it under a blanket and would not have been offset against normal operating income.

Okay.

And I said one other question.

I was a little bit curious.

During the fourth quarter, I've been doing channel checks and notice some pretty heavy promotions and Walmart and the Food and Drug channel in toothpaste, soft soap, but I haven't really seen that type of competitive action from your competitors.

And I was just wondering, did I just hit the stores at the wrong time or I guess if I'm the consumer at the right time or does this have anything to do with having an easier comparison coming up in North America in the fourth quarter?

I think that the U.S.

Company does a pretty careful analysis of meeting and trying to surpass competitive pricing and competitive promotional activity and my sense is that we are in fact doing that.

I don't think there is anything extraordinary.

Obviously we are spending a lot of money and they are spending a lot of money as you can see from the numbers.

But again remember that out of the -- what's listed on your sheets as a 3% price, negative in the U.S., less than a quarter of that is from toothpaste.

Okay.

Thank you.

Thanks, Jason.

I guess, is that it?

We have one more question.

Sure.

Follow up from Lauren Lieberman at Credit Suisse First Boston.

Oh, and actually she just disconnected.

So that is all the questions.

Good.

Thank you very much, appreciate all your patience and thank you for your support.

Bye bye.

That concludes today's conference.

Again, thank you for your participation.